Sharda Motor Industries held a conference call on 27 May 2024 to discuss the results for the quarter ended March 2024 and way forward. Mr. Aashim Relan – Chief Executive Officer and Mr. Puru Aggarwal – President and Group CFO of the company addressed the call.

Highlights of the Concall

• The Indian automobile industry has posted a strong performance with domestic industry growing by 12.5% during FY '24 on the backdrop of robust economic growth of 7.6%, based on conducive policies of the government. India continues to be the third largest automotive market globally.

• Sales volume for the passenger vehicle grew 9% YoY in Q4FY '24 at around 13 lakhs units. FY '24 sales volume was about 49 lakhs units. This growth can be attributed to improved rural demand or favorable product mix and the launch of new models, enhanced supply dynamics improved broad infrastructure and strong demand and the SUV segment also contributed to this growth. The industry is expected to grow at a single-digit rate in FY25 due to this high base effect of FY '24.

• Commercial vehicle total sales volume for Q4FY'24 reached to about 2.8 lakhs units, down from about 300,000 units in Q4FY '23 while for FY '24 it stood at approximately 10.3 lakhs units compared to approximately 10.4 lakhs units in the FY '23. This decline was mainly due to a significant drop in exports.

• Domestic CV volumes gained traction due to healthy infrastructure spending, aided by allocation for capital spending in the Union budget FY 2023-24 and a focus on replacing old vehicles under the Green Mobility policy. Conversely, domestic CV volumes were affected by weakened rural demand and cash flow due to unseasonable rainfall as well as a shift to high tonnage trucks, which increased payload capacity. Going forward, with the promising GDP growth outlook, government incentives to improve productivity in both, manufacturing and agriculture sectors, and a continued focus on infrastructure, demand for CV is expected to improve from second half of FY '25.

• In Q4FY '24, the two wheeler segment surged by 26%, reaching around 55 lakhs while FY '24 saw 10% growth to about 2.14 crore. Factors such as increased model availability, new product launches and favorable market sentiments, especially post the expiration of FAME II subsidy (Faster Adoption and Manufacturing of Electric Vehicles Phase II) on March 31 drove this growth. Consequently, the 2-wheeler EV market share rose notably to 9.12%. Additionally, strategic launches in premium segments and positive market sentiment further fueled the growth, supported by seasonal events, and improved vehicle supply, rural market recovery from COVID and financial incentives.

• In FY '24, the tractor industry saw an 8% drop in domestic sales, and a 22% decrease in exports due to various economic challenges. However, the outlook is positive for a recovery. The government is focusing on infrastructure development, increasing investment in agriculture and rural areas and boosting rural spending. Additionally, more agriculture credit is becoming available, helping farmers buy new equipment. These initiatives are expected to improve agricultural productivity and support rural communities, leading to a rebounding tractor industry.

• The company has improved its gross profit margin consistently, which now stands at 26.1% from 20.9% in the corresponding quarter of last year. This margin expansion of more than 500 bps can be attributed to higher value-added sales.

• The company continues to be debt free with surplus fund of approximately Rs 900 crore, including investment in bonds and mutual funds.

• The company wants to maintain or increase its market share in LCVs, as well as passenger vehicles, domestic exhaust system, RDE segment. It is also aiming for market leadership in the domestic tractor, TREM V, market, which is going to start in 1st April 2026.

• The company has been working for at least a couple of years now on the export side, and it has a good pipeline in terms of export subcomponents as well as emission systems for tractors and gensets.

• The company has capex plans to add a new facility in Chakan, Maharashtra with production capacity of up to 2,94,000 vehicle sets at around Rs 50 crore.